Anyone in the industry can tell you that mechanics liens are the best way to guarantee payment on a construction project. This is true across the country, including the state of Texas. Many are familiar with the Texas statutory mechanics lien, but there’s another type of mechanics lien available in the Lone Star State: the Texas constitutional mechanics lien. Here’s how it works, and who can use it.
About Texas constitutional mechanics liens
Texas is just one of seven states that have mechanics lien rights baked directly into their constitution:
Mechanics, artisans, and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor, and the Legislature shall provide by law for the speedy and efficient enforcement of said liens.Texas Construction Article XVI §37
So under Texas mechanics lien laws, there are two types of mechanics liens available, a statutory lien (Texas Property Code Ch. 53) and a constitutional lien. But what makes a constitutional lien different?
Who do constitutional liens protect?
One thing to keep in mind is that constitutional Liens in Texas are technically only available for original contractors. This traditionally includes those with a direct contractual relationship with the property owner.
But there is one circumstance where someone without a direct contract with the owner can still have constitutional lien rights. If the direct contractor’s contract is a “sham contract,” a 1st tier subcontractor may have these lien rights.
Sham contract exception
This begs the next question, what’s a sham contract? It’s all about control. A sham contract is when an owner can effectively control the prime contractor (or vis-a-versa) through ownership, directorship, or otherwise. Or if the prime was contracted without a good faith intention that they would perform as the GC. Under these circumstances, anyone who contracted with the prime can be considered original contractors.
For example, the owner of the property may use their own construction company as the general contractor for the project. Or, they may have some interest or control in the general contractor’s business. The inclusion of the “sham contracts” exception the Texas legislature is intended to protect against owners and or prime contractors attempting to circumvent the constitutional lien rights.
By entering into a sham contract, they are depriving those who would otherwise be protected under the Texas Constitution.
How to secure constitutional lien rights
This is the beauty of constitutional liens. Texas constitutional liens are “self-executing.” This means that they essentially arise automatically. If you’ve ever gone through the lien process in Texas, you know there’s a slew of monthly notice requirements and deadlines that need to be met to secure your rights. A slip-up with any of these requirements can result in the loss of your lien rights.
Discover how a Texas supplier cut their payment collection time in half after using software to send monthly notices.
That’s not the case with constitutional liens; which makes them much more difficult to challenge. In fact, you don’t even need to file a lien affidavit (but we still recommend it).
A constitutional lien can’t be enforced against a subsequent purchaser of the property if they didn’t have actual or constructive notice of the lien. So if you are still waiting for payment, go ahead and file one. The filing requirements are essentially the same: just file an affidavit of lien with the county clerk where the property is located. This acts as notice to any potential purchasers of the real estate.
Another main difference between constitutional and statutory liens is the time to enforce the claim. A TX statutory lien claim is valid for one to two years, depending on the project type. Texas constitutional liens have a four-year statute of limitations.
Which type of Texas lien is right for me?
Well, as stated, above, if you are eligible for a constitutional lien, use both. Constitutional liens arise automatically. If a lien claimant misses one of the statutory deadlines or notice requirements, they can fall back on the constitutional protections.
Just as with all Texas liens, there are some specifics and nuances in the lien process, such as the homestead property dilemma and tenant improvements. However, original contractors working in Dallas, Houston, or any part of Texas should know how these additional lien protections can help them get paid on their next construction project.